Sweeney’s Latest Orders Pull the Curtain Back Even More on Sweep

It looks like Judge Margaret Sweeney of the U.S. Court of Federal Claims wants to cut to the chase. This week, she issued an order affirming that she wants to review all documents the government has been trying to keep sealed up to this point in the litigation over the conservatorship of Fannie Mae and Freddie Mac, including those documents on which the government has invoked “presidential privilege.”   

These and other documents she has ordered unsealed in the last ten days are posted at The 53 documents she made available to lawyers representing Arnetia Joyce Robinson, an individual investor who sued the government in Kentucky Federal District Court last October, provide the most stunning evidence to date that the government has been profoundly misleading in its stated rational for the Sweep. They also show the White House itself nudged Treasury to adopt the policy, motivated by a zealous antipathy for the government sponsored enterprise (GSEs) and in utter indifference to the law.

As reported on by Gretchen Morgenson in the New York Times, and plainly evident by reviewing the documents we have posted, the new revelations raise fresh questions about extra-legal maneuverings by top aides to President Obama in devising the Sweep. For example, a senior White House housing finance official, Jim Parrott, sent an email to senior officials at Treasury the day the Sweep was announced in August 2012, boasting that diverting Fannie’s and Freddie’s profits would eliminate “the possibility that they ever go (pretend) private again.” He heaped praise on his Administration colleagues for pulling off a “high risk exercise” that resulted in a policy that was a “credit to the Secretary and the President” and which was already well received by the “outside world (or the reasonable parts anyway).”

Among the “reasonable parts” in the White House’s world view was the conservative American Enterprise Institute, which is not a frequent collaborator with the Obama Administration. On this occasion, however, in an email to AEI’s Jim Wallison, Parrott playfully refers to himself as a “fellow traveler.” This is bound to draw the ire of actual Communists everywhere or at least make American progressives uncomfortable.  

The first investor lawsuits likely began to materialize as soon as the audacious change the White House and Treasury engineered was understood.  By the way, Arnetia Robinson, a retired bank manager and loan officer, bought Fannie and Freddie shares in September 2008 to help fund her retirement. She apparently is part of the “unreasonable” part of the world in the Administration’s world view.

The close coordination between Treasury and the White House and the hubris on display puts officials in an awkward light. But Judge Sweeney made clear in unsealing seven documents last month that sparing public servants from embarrassment is not a reason to hide the operations of government from the public. Indeed, these recent revelations go to more serious issues at the heart of litigation over the Sweep – the rule of law and transparency in government.

When the conservatorship was established in 2008, it was to restore the GSEs’ health and release them. That is what the Housing and Economic Recovery Act said. Period. And yet, here in black and white is evidence of a cabal of officials at the White House and Treasury doing just the opposite. In addition, the GSEs’ designated conservator, the Federal Housing and Finance Agency, was apparently out of the loop in the policy pivot, even though HERA explicitly walled FHFA off from Treasury’s influence and control. On the eve of the announcement of the Sweep, Mario Ugoletti, then a senior FHFA official, sent colleagues an email indicating there were reports of a big change coming on the Preferred Stock Purchase Agreement. In essence, the Sweep originated outside the office of the conservator and apparently FHFA was simply to carry out orders.

To be sure, owning up to a misapplication of law is not something any Administration wants to do. That is why an alibi was offered up in court: The “death spiral” narrative. The government has claimed that the Sweep was needed to protect taxpayers from the “death spiral” of Fannie and Freddie’s finances. Documents released in April blew holes in that assertion and the documents unsealed May 11 completely obliterate it. Just weeks before the Sweep was announced, during a meeting of Fannie Mae executives, the next eight years were characterized as the “the golden years of GSE profitability.” “Death spiral” and “golden years” are about as antithetical as terminology gets.

The more we know about what was at work in the summer of 2012, the more the government’s secrecy makes sense – at least for the government. And that is why this saga is so troubling. As Morgenson commented, “The significance of these documents, however, goes well beyond the future of housing finance. They demonstrate the perils of allowing the government to act in secrecy. In asking for confidentiality surrounding its actions, the government argued that the release of such documents would roil the financial markets. What seems clearer all the time is that their release will instead help the public understand what the government did here and why.”

In our view, the law is not a Jackson Pollock painting, open to each viewer’s interpretation. It is supposed to be “faithfully executed” in the light of day for the “outside world” to see, regardless of whether a handful of government officials consider some segments of the public “reasonable.”